Distribution Rate Application 2015 2019...Oct 16, 2013 · Customer Feedback New Connections Regulatory Changes ... TransAlta Corporation $2,262.0 3,140 Bruce Power* $2,103.7 4,200

Stakeholder Consultation

Distribution Custom Rate Application 2015‐2019

Stakeholder Session #3October 16, 2013

Agenda1:00 p.m. Registration

1:05 p.m. WelcomeAllan Cowan, Director Major ApplicationsHydro One Networks

1:10 p.m. Introductions and Agenda Bob Betts, Facilitator, OPTIMUS|SBR

1:20 p.m. 2015‐19 Distribution Application Allan Cowan, Director Major ApplicationsHydro One Networks

1:35 p.m. Business Planning Process and Facilitated Discussion

Glenn Scott, Director Corporate Planning & FinanceHydro One Networks

Bob Betts, Facilitator, OPTIMUS|SBR2:25 p.m. Break

2:35 p.m.Asset Investment Planning & Asset Analytics Demonstration and Facilitated Discussion

Lyla Garzouzi, Manager Distribution DevelopmentHydro One Networks

Bob Betts, Facilitator, OPTIMUS|SBR

3:25 p.m. Compensation Cost Benchmarking Study and Facilitated Discussion

Allan Cowan, Director Major ApplicationsHydro One Networks

Iain Morris, Consultant, Mercer

Bob Betts, Facilitator, OPTIMUS|SBR

4:20 p.m. Closing Remarks/Next Steps Allan Cowan, Director Major ApplicationsHydro One Networks

4:30 p.m. Adjourn

2

Facilitator’s Remarks

Introductions Facilitator, Bob Betts & OPTIMUS | SBR support team

Meeting Facilities

Safety Review

Note taking process

Participant Introductions

3

Meeting Process

Mobile phones “Off” or “Silenced”

Avoid side discussions while others speaking

All questions are good ones

All comments are appreciated

Materials and notes will be posted on Hydro One’s Regulatory Website:

www.HydroOne.com/RegulatoryAffairs

4

2015‐19 Distribution Application 5 year Custom Cost of Service application, including:

Annual Adjustments / Adjustments outside of normal course of business, Rate Smoothing, and Annual Reporting Metrics

Study Inputs into Plan: Rate Class Review, Seasonal Rate Initiative, Line Loss Study Depreciation, Overhead Capitalization, Corporate Cost Allocation, Lead‐Lag Compensation Cost Benchmarking Study Customer Research

Timeline: Business Plan Approval by Hydro One Board – Nov 14/13 Stakeholder Session #3 (Approved Business Plan & Stakeholder Feedback Update) – Nov 27/13 File Application with the OEB – Q1 2014

5

66

Business Planning ProcessOctober 16, 2013

Glenn Scott

Director, Corporate Planning & Finance

Hydro One undertakes a rigorous planning process on an annual basis

For 2013 the planning process will produce a 2014 budget and 2015‐2019 Business Plan

Provides the foundation for our 2015 to 2019 distribution rate application

It is a detailed bottom up planning exercise with executive oversight throughout the process

Overview

2

Business Planning Process

Board of Directors Approve Distribution

Rate Filing

2015 – 2019 Distribution

Application Filed with the OEB

Consolidated 2014 Budget and 2015‐2019 Business Plan

Reviewed & ApprovedBoard of Directors

Corporate Support Costs

Investment Plan

PrioritizationPlanning

Assumption, Economic Outlook

Developed

Strategic Direction & Goals Established by Senior Management

Senior Management Input

3

Planning InputsBusiness Values & Objectives

Operational Risk

Factors

External / Market

Influences

Condition Performance Utilization / Load Growth Obsolescence Criticality Safety & Environment Maintenance Strategies

Market Rules Customer Feedback New Connections Regulatory Changes New Standards R&D and New Technology

Safety Customers Reliability Environment Employees Shareholder Value Productivity

Capital Programs

O&M Programs

Investment Plans

4

Business ModelDebt

Rate Base

Return on Capital

OM&A

Depreciation

Taxes

Revenue Requirement

Cost of Capital

EquityCapital Structure60/40

+

+

+

X

=

5

Economic forecast

Asset condition

Customer and supply growth projections

Government initiatives

Regulatory requirements

Planning Assumptions

6

Historically each year Hydro One’s Board would approve a 1 year budget and 2 year outlook based on a 5 year business plan

For this year’s process Hydro One’s Board will approve a 1 year budget and a 5 year business plan to support the 5 year custom filing

New Tools and Capabilities More centralized better quality data Asset Analytics Asset Investment Prioritization

What is Different?

7

Customer Voice Customers want Hydro One to:

− Maintain or reduce their total bill− Meet commitments and timelines for planned outages; ensure accurate

and timely ETR for unplanned outages− Maintain reliability for residential customers; address power quality for

large customers

Productivity Improvements Customer Information System Outsourcing Renewal

Outcome Monitoring Annual Reporting

How has Hydro One reflected the OEB’s enhanced requirements?

8

Identifies the best timing and level of investment to minimize risk, maximize savings, and meet our corporate values and targets

Applies pre‐determined constraints and uses data analytics to prioritize investments

Strikes a strategic balance between Capital (replacement / refurbishment) and OM&A (maintenance) for sustainment investments

Provides assurance that our plans meet an ‘acceptable’ risk level, and are achievable from a resourcing perspective

Investment Planning Process

9

Investment Levels

10

Increasing Funding

Incremental Investment Funding Levels

Vulnerable

Intermediate

Asset Optimal

Lower

Higher

RelativeRisk

MediumLow HighRisk Level

Measuring Risk

Very Likely

Likely

Medium

Unlikely

Remote

Unexpected

Minor Moderate Major Severe Worst Case

Consequence

Probability

Below shows residual (left‐over) risk of each investment alternative

11

Senior management reviews results, including the impact on customer rates and approves the final investment plan and corporate support costs

Consolidated Business Plan reviewed and approved by the Hydro One Board of Directors

Business Plan Finalization and Approval

12

1818

Asset Investment Planning& Asset Analytics DemoOctober 16, 2013

Lyla Garzouzi

Manager, Distribution Development

2Lyla Garzouzi

Asset Analytics

3

A suite of tools to…

Make corporate data accessibleAnalyze based on consistent risk factors

Visualize analysis and assets

Benefits

Ability to make more effective investment decisions and invest in the highest impact highest criticality areas

Rationalization of work programs

Universally accessible visualizations of asset priority and status

Why?

4

Overall Rating or Asset Risk is determined by assessing the following risk factors:

Demographics

Conditions

Performance

Criticality

Utilization

Economics

How?

5

Asset AnalyticsDemonstration

Lower Risk Higher Risk

0 50 100

6

2424

Compensation Cost Benchmarking StudyOctober 16, 2013

Allan Cowan

Director, Major Applications

Iain Morris

Consultant, Mercer

In the 1st Stakeholder Session for the 2015‐19 CustomDistribution Rate Application held on April 29th, 2013;stakeholders inquired if the compensation study would beupdated over the period?

Hydro One listened and undertook a new CompensationStudy in preparation for the 5 year Custom application.

Mercer was selected through an RFP process as the vendorfor the study.

Overview

3

COMPENSATION COST BENCHMARKING STUDYHydro One Network Inc.16 October 2013

Preliminary Findings

MERCER

Preliminary Findings1

Agenda

• Features

• Determining Benchmark Positions

• Determining the Peer Group

• Total Compensation– Elements– Methodology

• Preliminary Results (Hydro One P50 relative to Market P50)

• Preliminary Results (Hydro One P50 relative to Market Average - Overall)

MERCER


2013 Compensation Cost Benchmark StudyFeatures

• Below are some of the major features of this year’s study:– Assesses regulated Transmission and Distribution utilities’ compensation costs

benchmarks across Canada

– Conforms to best industry standards for independence, testability and repeatable market-based assessment

– Assures participants’ confidentiality by the study’s design, methodology and process that respondent information cannot be attributed or inferred

– Mirrors the scoping included in the 2011 and 2008 studies for peer selection, job classes, etc

– Mirrors the questionnaire used in the 2011 and 2008 studies for ease of participation by returning participants

2

MERCER


2013 Compensation Cost Benchmark StudyFeatures (cont’d)

• Enables reasonable comparison to the 2011 and 2008 studies and provides trending analysis for Hydro One’s next application

• To balance the repeatability and durability of results obtained, the scope of the 2013 study was enhanced by targeting the same benchmark jobs and adding 4 additional organizations to participate, in addition to the organizations that were invited to participate in 2011

• Meaningful and accurate comparison of the 2013 results to the 2011 and 2008 findings as a result of the similar approach and methodology to previous years’ studies

MERCER


Determining the Benchmark PositionsNeed to represent different functions and organization levels

• Individual jobs– Stable job content that is well understood– Large number of incumbents– Found in other organizations

• Benchmark jobs or classes in aggregate– Represent all major functions– Represent all levels in the organization from front-line to senior management– Representative of different compensation regimes

• Balance numbers– Enough to understand complete picture– Not so many as to cloud conclusions

• Recognize reality of surveying

• Core jobs– Core jobs from 2011 study

MERCER


Benchmark PositionsHydro One Group Job # Benchmark Survey Title

1 Financial Director

2 Top Rates and Regulatory Affairs Executive

3 Senior Legal Counsel

4 Engineer F

5 Area Superintendent

6 Human Resource Manager / Consultant

7 Field Service Coordinator

8 Administrative Assistant

9 Engineer E

10 Business Analyst C

11 Engineer D

12 Engineer C

13 Engineer B

14 Business Analyst A

15 Engineer A

16 System Operator (Controller)

17 Regional Maintainer - Lines (Supervisory)

18 Protection and Control Technician

19 Area Distribution Engineering Technician

20 Regional Maintainer - Lines

21 Regional Maintainer - Electrical

22 Fleet Mechanic

23 Lineman - Journeyman

24 Regional Maintainer - Forestry*

25 Service Dispatcher

26 Drafter II

27 Stock Keeper

28 Data Entry Clerk

29 Production Field Administrator III

30 Electrical Apprentice

31 Lines Apprentice

32 Meter Reader

33 General Labourer/Roustabout

*Insufficient data to report

Non-Represented

Professionals

Power Workers

MERCER


Determining the Peer Group

Selection Criteria Type of Organizations

Located in Canada • All Canadian Companies

Closely related businesses • Transmission, Distribution, Generation

Other regulated and comparable businesses • Similar regulatory regime

Asset Intense • Overall asset intensive rather than people intensive

Similar workforce characteristics • Highly skilled• Significant level of unionization

Similar organizations• Similar employee population• Similar asset base• Similar geographic footprint

The objective: create a single peer group to assess total compensation costs for the entire set of benchmark jobs

• Similar approach to the 2011 study: Considered annual revenues or total assets between 33% and 300% of Hydro One’s 2012 annual revenue or total assets, from the following areas:

MERCER


Peer Group

• Summarized below are the companies that were included in the compensation benchmarking:

Company Name Revenue1 # of Employees1,2

Hydro-Québec $12,228.0 21,000

BC Hydro Power & Authority $4,898.0 5,862

Ontario Power Generation $4,732.0 10,691

EPCOR Utilities* $4,036.0 4,036

ENMAX Corporation $3,160.1 1,840

Toronto Hydro Electric System Ltd. $2,852.0 1,526

Enbridge Gas Distribution $2,400.0 2,200

TransAlta Corporation $2,262.0 3,140

Bruce Power* $2,103.7 4,200

Manitoba Hydro $1,902.0 6,637

SaskPower $1,862.0 3,000

New Brunswick Power $1,697.0 2,361

PowerStream Inc. $1,029.0 541

Enersource Corp* $822.0 374

Horizon Utilities Corporation* $114.7 404

75th %ile $3,598.1 5,031

50th %ile $2,262.0 3,000

25th %ile $1,779.5 1,683

Average $3,073.2 4,521

Hydro One $5,728.0 5,337

1 Data as reported by survey participants2 Representative of full-time employees and equivalents only* New participants in 2013

MERCER


Elements of Total CompensationFocus on items that can be monetized

• Base wages or salaries• Short-term incentives

– Annual incentive plans– Productivity incentives

• Long-term incentives– Various forms– Mostly at senior management level

• Insured Benefits– Health, Dental, Life, Disability– Company paid portion

• Retirement plans– Registered plans (DB, DC, Group RRSP)– Non-registered plans (SERPs)– Company paid portion

MERCER


Total Compensation Methodology

• Definitions and methodology:– Base Salary / Wage

- Effective date: July 1st, 2013– Total Cash Compensation

- Base salary plus most recent short-term incentive or bonus paid– Benefits and Pensions

- Applied relative value process to determine standard “employer paid cost” - Standard actuarial and demographic assumptions to measure all financially

significant features of benefit and pension programs - Used open and closed plans

– Long-term Incentives- Estimated annual value of most recent long-term incentive grant (i.e., stock

options or share awards)– Total Compensation

- Total cash compensation plus benefits and pensions plus long-term incentive

MERCER


Total Compensation Methodology (Continued)

• Definitions and methodology (Continued):– P50

- 50th percentile the middle point in a rank listing of data for a particular variable– Avg. or Average

- Arithmetic mean the sum of data for a particular variable divided by the number of observations

MERCER


Hydro One Group# of Hydro

One Incumbents

2013 2011 2008 0.50 0.75 P50 = 1 1.25 1.50

Non-Represented 206 0.99 0.83 0.99

Professionals 746 1.09 1.05 1.05

Power Workers 2,100 1.12 1.18 1.21

Overall 3,052 1.10 1.13 1.17

Total Remuneration (Current)

Multiple of P50 Hydro One P50 Relative to Market P50

Wei

ghte

d A

vera

ge

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Preliminary ResultsOverall – Total Compensation (P50)

• Summarized below are the overall, preliminary results comparing Hydro One P50 to Market P50, by employee group

Below P50 Compensation

Above P50 Compensation

X2013 Hydro One Position Relative to Market2011 Hydro One Position Relative to Market2008 Hydro One Position Relative to Market

Legend

O

MERCER



One Incumbents

2013 2011 2008 0.50 0.75 P50 = 1 1.25 1.50

Financial Director 3 1.21 1.09 0.94

Top Rates and Regulatory Affairs Executive

4 0.99 0.66 1.05

Senior Legal Counsel 8 1.12 1.10 n/a

Engineer F 83 0.85 0.79 0.90

Area Superintendent 16 1.00 0.97 n/a

Human Resource Manager / Consultant

8 0.74 0.70 0.75

Field Service Coordinator*

76 1.14 n/a 1.37

Administrative Assistant

8 0.97 1.06 0.99

Weighted Average Non-Represented 206 0.99 0.83 0.99

Note: Where there is insufficient data, "n/a" will exist* Average market data reported as median for comparison purposes



Non

-Rep

rese

nted

12

Preliminary ResultsNon Represented - Total Compensation (P50)

• Summarized below are the preliminary results for the Non-Represented group comparing Hydro One P50 to Market P50




Legend

O

MERCER



One Incumbents

2013 2011 2008 0.50 0.75 P50 = 1 1.25 1.50

Engineer E 132 0.97 0.97 1.01

Business Analyst C 15 1.38 1.28 1.18

Engineer D 258 1.07 0.97 1.01

Engineer C 18 1.19 1.23 1.29

Engineer B 271 1.12 1.12 1.14

Business Analyst A 11 1.30 1.14 n/a

Engineer A 41 1.12 1.14 1.01

Weighted Average Professionals 746 1.09 1.05 1.05

Note: Where there is insufficient data, "n/a" will exist



Prof

essi

onal

s

13

Preliminary ResultsProfessionals - Total Compensation (P50)

• Summarized below are the preliminary results for the Professionals group comparing Hydro One P50 to Market P50




Legend

O

MERCER



One Incumbents

2013 2011 2008 0.50 0.75 P50 = 1 1.25 1.50

System Operator (Controller)

92 1.28 1.30 1.26

Regional Maintainer - Lines (Supervisory)

92 1.24 1.31 1.43

Protection and Control Technician

82 1.30 1.38 1.26

Area Distribution Engineering Technician

180 1.23 1.27 1.22

Regional Maintainer - Lines

742 1.22 1.19 1.27

Regional Maintainer - Electrical

238 1.17 1.27 1.29




Pow

er W

orke

rs

14

Preliminary ResultsPower Workers - Total Compensation (P50)

• Summarized below are the preliminary results for the Power Workers group comparing Hydro One P50 to Market P50




Legend

O

MERCER



One Incumbents

2013 2011 2008 0.50 0.75 P50 = 1 1.25 1.50

Fleet Mechanic 68 1.21 1.27 1.20

Lineman - Journeyman 80 1.04 1.18 1.15

Service Dispatcher 20 1.41 1.45 1.42

Drafter II 33 1.30 1.44 1.28

Stock Keeper 49 1.37 1.43 1.42

Data Entry Clerk 63 1.21 1.27 1.13


Pow

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Preliminary ResultsPower Workers - Total Compensation (P50) (cont’d)

15





Legend

O

MERCER



One Incumbents

2013 2011 2008 0.50 0.75 P50 = 1 1.25 1.50

Production Field Administrator III

3 0.69 1.04 0.95

Electrical Apprentice 53 0.76 0.98 n/a

Lines Apprentice 285 0.87 0.95 n/a

Meter Reader 10 0.93 0.87 1.13

General Labourer/Roustabout

10 0.73 0.87 0.83

Weighted Average Power Workers 2,100 1.12 1.18 1.21




Pow

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Preliminary ResultsPower Workers - Total Compensation (P50) (cont’d)





Legend

O

MERCER



One Incumbents

2013 2011 2008 0.50 0.75 Average = 1 1.25 1.50

Non-Represented 206 0.97 0.84 0.99

Professionals 746 1.09 1.06 1.05

Power Workers 2,100 1.13 1.15 1.21

Overall 3,052 1.10 1.12 1.17

Wei

ghte

d A

vera

ge


Multiple of Average Hydro One P50 Relative to Market Average

17

Preliminary ResultsOverall – Total Compensation (Average)

• Summarized below are the overall, preliminary results comparing Hydro One P50 to Market average, by employee group

Below Average

Compensation

AboveAverage

Compensation


Legend

O

Mercer (Canada) Limited

Thank you for attending!Check our website for further information:www.HydroOne.com/RegulatoryAffairs

Any questions or comments can be directed to:[email protected]

Documents

Distribution Rate Application 2015 2019...Oct 16, 2013 · Customer Feedback New Connections Regulatory Changes ... TransAlta Corporation $2,262.0 3,140 Bruce Power* $2,103.7 4,200